At home with Asian tigers

Can the UK compete?

By Stuart Lauchlan

January 14, 2007

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Is UK plc ready for the competitive challenge from China and India? Rather depressingly, an overwhelming 80 per cent of delegates at the CBI conference in November said no; while 76 per cent said China would be the most influential nation in 10 years time.

“Over the next 15 years, up to half the world’s future growth will come from India and China. By 2020, the G-7 share of growth, will fall to just one third,” said Chancellor Gordon Brown at the conference. “China and India are turning out 4 million graduates a year – Britain, 250,000. And these people are not only raising skills in their countries but challenging us and other advanced nations in a race to the top. It is ridiculous that less than 2 per cent of our trade is with India and China, given our historical links to India and the last few years of engaging with China.”

Rising superpowers

To date the main focus of attention on India has been the perceived ‘threat’ to UK jobs from offshoring. Now China is looming as the ‘next big thing’ in offshoring. So are things simply getting worse? Is UK plc under threat from not one but two economic superpowers? What if they joined forces? Are we ready for the prospect of ‘Chindia’? Leading global investment bank Goldman Sachs estimates that China will overtake the US as the world’s largest economy by 2039. India will be close behind. India is second to the US in software production, database design and management. China is the world’s manufacturing hub, producing over 50 per cent of the world’s cameras; 30 per cent of air conditioners; and 25 per cent of washing machines. Some view India as the back-office of the world and China as its workshop. The question for CIOs is how to select one over the other as an offshoring location in which to invest?

For some it is all about the tried and tested option. “We are looking at India,” says Jora Gill, vice-president of international business systems, Standard & Poor’s. “We see India as the most mature market in terms of offshoring. As we are in financial services, we do not want to take risks and we would rather follow the herd.

“But we are also looking at growing in China and have offices in Beijing. We are looking at India and China because we are looking at the streams of well-educated people coming out of universities. They are building a lot of technical colleges. The second language of India is English.

“We are a US organisation with bases all over the world and our language is English. It is the language of financial services; hence the attraction of India in particular. Equally, China is emerging as a base because India is beginning to get a bit expensive now.”

In reality both locations do not provide answers to every need. “I think China still has a long way to go. I think even India has a long way to go,” says Gill. “In financial services, we spoke five years ago with people in TCS and Wipro and they said: ‘Today we body-shop. In five years’ time, we are going to move up the value chain and supply business analysts, project managers and programme managers.’ Five or six years later, they do not use the term ‘body-shop’ but that is what they are doing.”

The question of value is an important one. “We do business in Asia,” says John van Vianen, senior vice-president of network services, KPN. “We have been in telecommunications for more than 20 years. Many Dutch firms want to move their economic operations to Asia. We looked at doing it ourselves or with a partner and ultimately, we chose SingTel as our partner.”

Indian value

“Perhaps the amount of money spent in China will soon be bigger than India but I think the amount of value added will be much bigger in India for the next five to 10 years,” says van Vianen. “One issue for The Netherlands is that first-line customer contacts need to speak Dutch. For the UK, English is the second language in India, Singapore and Malaysia. Nearly everyone speaks English, so it is very easy to shift jobs to Asia if you want to. But as we need people who speak Dutch, there will not be as large or as immediate an impact for The Netherlands in terms of employment rates.”

But do companies really take the cultural differences into account when setting up offshore – or are they just chasing the cost savings and trying to overlay their own cultures, regardless of sense and sensibilities?

“With India, there was an idea that you could send the bits you really didn’t want to do yourself,” says Sharm Manwani, associate professor and leader, CIO elective, Henley Management College. “But now students are saying, ‘we do not want to do this, we want to do C-Sharp and Java’,” he says.

“So it’s all changing. The supply and demand is interesting. Even though India is supplying a lot of engineers, the demand is so great that companies are struggling to provide resources. It is not the way it was a few years ago, when you could pick up the phone and say, ‘we need trained people and we need them yesterday.’ Now, you won’t get them for a month. There is another point. Culturally, we are not changing. We are expecting Indians and Chinese to change to the way we think.”

“We do not like to hear bad news,” believes Manwani. “When I go to my business sponsor and say, ‘we’re going to go over budget and we’re going to be late,’ he will never say, ‘oh, that’s okay, these things happen.’ He will say, ‘what the hell is going on? I demand to know’.

“When you have an Indian culture which respects its elders – and, in a way, your manager is your elder – they are a bit frightful of breaking bad news to business sponsors, so they will not say anything. We have seen a lot of projects in which we have not heard anything all the way along, then three weeks before we are meant to go live, it is ‘bad news: we’re going to fail.’ War stories are going around a number of companies. People are being put off due to the cultural issues and skill sets,” says Manwani.

Global hegemony

He adds: “If you go into Asia as IBM, you ask what is most important? Do you want an IBM culture or do you want a culture that can most readily do business locally? I think the American philosophy in that regard is to think big and to work with big companies: ‘You do business with us and we will make it the same as in the US. We will treat you in the same way.’ As Asian companies become global, how do they deal with those challenges? What approaches will they take?”

Asia is the world’s largest market for consumer goods and services. China and India have three billion people, so there are big opportunities.

Asia is also a huge producer of goods and services. Whether it is banks, manufacturing companies, logistics, food or beverage companies, everyone is looking at Asia with tremendous interest, at least over the next five to 10 years.

While it is a land of opportunity, there are also a number of challenges. Asia is made up of more than 20 countries, all at different stages of maturity in terms of their processes and infrastructures.
The cultures are very different as well. What means ‘yes’ in one country might not mean ‘yes’ in another country. It is very different working with India, as opposed to Thailand, Korea or Singapore. Building relationships is crucial.

It is important to understand the region and invest for the long term. From an infrastructure standpoint, countries are at different levels but Asia is a huge opportunity. Middle-income growth and high-income growth is booming but local knowledge and partnerships are critical to mutual satisfaction and success.

Joined-up thinking

But what about Chindia? Is it a credible fear or just a piece of ill-named marketing jargon designed to flog a few more consultancy text books? A recent Pew Global Attitudes Project survey found that China’s neighbours – including India – are worried about its growing military strength. 43 per cent of Indians were said to feel negatively about China – mainly it can be assumed because of the 1962 war and other historical reasons – 39 per cent of Chinese too feel the same way about India. Interestingly, the survey also claimed that 32 per cent of Indians believe China will replace the US as the dominant superpower within the next 10 years; and 50 per cent of Indians surveyed consider China’s growing economy a bad thing for them. The two former foes may be trying to lay their turbulent past to rest but Chindia is not high on the immediate agenda of either country. “Culturally, there is a fracture between India and China,” says Manwani.

“I was in India when the Chinese president was visiting and the television coverage consisted mainly of comic sketches. They have been at war as recently as the 1960s. They can see the economic reasons for working together but I think there will always be a cultural divide.”

So the conclusion seems to be that for now both India and China will go their own ways, each boasting different skills sets that will appeal to certain western companies and not necessarily simply threaten them.
“When I am travelling in India, I see that the younger Indian people are very confident but it will take a generation for India to have western ‘cockiness’, for want of a better term,” concludes Gill. “As for China, I do not know enough about the Chinese people and markets. I have not done a great deal of business there but I think it is going to take a while, particularly if you consider the language barrier.”